In my previous essay, “Capacity Building: What, Why, and How”, I explored my personal thoughts on capacity formed from my past two years working with Denison VPC — a more detailed explanation of what capacity means, why one would want to pursue capacity-building grants as opposed other kinds of grant work, and some rules of thumb I’ve been following in trying to build capacity and look for capacity-building opportunities. For Denison Venture Philanthropy Club, capacity building is in our mission statement, our founding mission, and the goal of all our grants. Thus understanding capacity further is very important to VPC.

To get a bit more grasp on capacity, I decided to supplement my personal reflections with a bit more digging in the professional literature. The previous essay already looked at Dr. Tanya Judd Pucella’s “An Analysis of Non-profit Capacity Building in the Mid-Ohio Valley” (PDF) that outlines seven different types of capacity and makes the point that organizations often have different capacity needs within these categories.

In this essay, I’m going to assume familiarity with the definition, rationale, and general basics of capacity (see “Capacity Building: What, Why, and How”) and delve deeper into how capacity is conceptualized and understood. I will be using a report prepared for Venture Philanthropy Partners by McKinsey & Company entitled “Effective Capacity Building in Nonprofit Organizations” (PDF) that seeks to conceptualize capacity using a pyramid of “seven elements of non-profit capacity”, though a different set of seven than outlined by Dr. Pucella. I’m not going to personally vouch for this report’s accuracy or relevance to all organizations, but I will vouch for its potential usefulness in conceptualization.

The Capacity Pyramid: Seven Elements of Non-Profit Capacity

The McKinsey & Company report conceptualizes organizational capacity as a seven-piece pyramid — each piece well-connected but conceptually distinct. Each piece may individually lack needed capacity — some pieces may be lacking while others may be just fine. Furthermore, strategies to build capacity within each piece will be different from strategies to approach other pieces. However, understanding the function of a non-profit and building capacity requires not only understanding each individual piece, but how they fit together to form the organization.

Aspirations: At the top of the pyramid are aspirations, which refer to the overall mission, vision, and goals of the organization that articulate the big-picture objectives. The function of aspirations are to define what an organization aims to do, set priorities, and inspire people to action. Building an organization’s aspirations involve figuring out better ways of understanding what the organization intends to do, and communicating those intentions to others in a compelling way. Aspirations represent the organization’s “bottom line” — without aspirations, the organization has nothing in particular to do.

Strategies: Once aspirations are in place, the next part of the pyramid involves the process for making these aspirations into reality. Strategies exist to connect the big picture with the little picture — make sure the day-to-day runnings of the organization are effectively moving the mission forward and working to achieve the aspirations. Strategies help the organization “move from here to there”, but often they can end up unsuccessful or completely disconnected, and stop moving the organization forward. Strategies need to be effective and properly aligned with aspirations.

Organizational Skills: If aspirations are the “big picture” and strategies connect the “big picture” to the “little picture”, organizational skills represent the “little picture” that is being implemented. Strategies dictate what should take place in order to achieve the aspirations, but organizational skills dictate how these things are done. Being aware of the skills of the organization can help understand what can be done well and what can’t, to make sure that the organization does what it can to help people. Understanding organizational skills can also help identify “skill gaps” — like a good ability to implement programs but a poor ability to manage finances or evaluate outcomes.

Human Resources: Once the organization has projects to implement based on their organizational skills and determined by the strategies that connect to accomplishing the aspirations, there needs to be resources in place to get these done. Human resources represents the collective skills and experiences of all the people that work for the organization, and their ability to implement the programs. Recruiting, managing, and retaining talent is critical to building human resources.

Systems and Infrastructure: These things are the mechanics behind how the non-profit functions — everything from mail solicitations to programs to monitor finances and write reports. Systems and infrastructure represent the capital used by the non-profit to implement, manage, and evaluate the programs and operations.

Organizational Structure: The way that non-profits are organized to get things done is also important; this includes the delineation of roles and responsibilities, and looking at how people cooperate with each other throughout the organization to implement programs, and how they make use of systems and infrastructure.

Culture: All throughout the pyramid lies organizational culture. The culture of a non-profit organization is considerably important, many more so than a business culture of a for-profit. The organizational culture is what holds people together and makes them willing to accept lower pay while still working hard. Not only is culture important to cultivate in its own right as a type of capacity, but culture can exist to accept or reject other capacity building initiatives.

Four Lessons Learned

In developing the Capacity Pyramid, McKinsey & Company did a survey of many different capacity builders and organizations that had undergone intentional attempts to build capacity within these areas. In their survey, they also came away with four key takeaways or lessons learned about how to more effectively build capacity that have been applicable to every organizaton, regardless of their specific circumstances:

1.) Effective capacity building is rooted in self-assessment, and done comprehensively: When self-assessing to determine capacity needs, many organizations find that they have needs in a wide variety of areas, and that building capacity in some areas requires changes in other areas as well. Thus, the best capacity building is not done in any particular area at a time, but rather wherever the non-profit needs it.

2.) Resetting aspirations and strategy is often the first and most important step: Frequently, aspirations are considered untouchable no matter how inadequately stated, or no matter how much things have changed over time. Instead, capacity can be built by updating the aspirations to be more relevant, more clear, and more inspiring, and if used to help align other parts of the organization.

3.) Leadership and management are distinct yet simultaneously important: Many successful non-profits have visionary leadership, but visionary leadership should not be confused with or taken to automatically assume visionary management. Energy and charisma are important to inspiring action and thinking deeply about aspirations, but are not in themselves sufficient to manage the day-to-day little picture of programs. Management, in addition to leadership, needs to be taken into account among the organization skills. Passionate leaders should recognize this and consider partnering with effective managers.

4.) Capacity building requires patience, perseverance, and a long-term view: The need for capacity building may not be immediately apparent, but the outcomes of capacity building can often not be seen for many years, and require continual work. Capacity building is definitely for the long haul, and is always longer and more complicated than people expect. There are few quick fixes, and demanding immediate results will be counter-productive.

McKinsey Capacity Assessment Grid

In addition to helping understand capacity, McKinsey & Company also work from a grid (or rubric) to help score organizations on their current capacity and understand how to use the pyramid framework to better understand the individual needs of the organization. The grid helps understand where improvement is most needed and track progress over time. It’s important to note that the grid is not a scientific tool, but rather a starting point that can be used to better understand capacity conceptually.

The actual grid is lengthy and available on page 84 to 113 of the report (PDF), with instructions for use on page 77-79. Again, I won’t vouch for its accuracy or universal relevance, but do see it as useful for conceptualizing capacity. I won’t reprint the entire grid verbatim here, but I will summarize some of my takeaways:

Aspirations
1.) Mission statement should clearly, concisely, and specifically outline the reason for the organization’s existence.
2.) The mission statement should be widely known throughout the organization and frequently referred to.
3.) The mission statement should be useful and relevant for setting organization priorities and creating a strategy.
4.) The vision of the organization should be compelling, and share a bold and inspiring view of the future.
5.) The vision should be demanding, but achievable.
6.) The goals of the mission and vision should be concrete enough for success to be recognizable.

Strategy
7.) Strategy should be linked to and informed by the aspirations of the organization; implementing the strategy successfully
should accomplish the aspirations.
8.) Strategy should be actionable and explicitly drive day-to-day behavior of the organization.
9.) Strategy should set both medium-term and long-term goals in all areas that can be accomplished and tracked, with milestones.
10.) Programs should be frequently assessed to see how they meet up with the strategy, with a focus on outcomes/results of the programs (did the program work?) rather than the program simply going to plan (did the program happen?).

Organizational Skills
11.) Organization should be able to preform in a wide variety of areas is known, assessed, and understood both broadly and narrowly.
12.) Organization’s impact should be assessed and known.
13.) Organization should know about other organizations working within the area and alternative solutions / programs / projects being deployed, if any; behavior of organization should react to this new data; and communication with other organizations should be open to share practices.
14.) Organization should understand its own needs and has steps in place to address them.

Human Resources
15.) Organization should be adequately staffed, without attendance or turnover problems.
16.) Members should have a broad variety of experience relevant to the operations of the organization.
17.) Members should be motivated, energetic, and passionate.
18.) People working on human resources should be aware of the individual needs of organization members and be able to communicate with them effectively.

Systems and Infrastructure
19.) Systems and infrastructure should be integrated as part of the strategy.
20.) Systems and infrastructure should be widely understood and used by the organization to the degree that is relevant.

Organizational Structure
21.) Organization is coordinated and works well together.
22.) Roles and responsibilities are formalized in a useful and actionable manner, referred to, and widely understood.

Culture
23.) There is a common set of general values the organization stands for that are widely shared and understood, and provide a sense of direction complimenting the aspirations.
24.) Organization culture is based on performance rather than “gut feeling”, and decisions about employees and processes are made with explicit reference to performance.
25.) The implicit culture of the organization is understood and not overly engineered; changes to the organization are made with their impact on the existing culture understood and with cultural reactions anticipated.

Putting it Together So Far

McKinsey & Company’s Capacity Pyramid comes with seven elements of capacity, four key lessons learned, and a grid from which I’ve identified twenty-five takeaways or ways that capacity can be benchmarked. However, some parts of the pyramid work for me while others don’t, and it the pyramid doesn’t mesh well from Dr. Tanya Judd Pucella’s seven types of capacity building I explored in my previous essay.

So to further my personal understanding, I wanted to take the opportunity to integrate what I’ve been learning into my own personal capacity conceptualization, and develop the diagram as I go. I don’t suggest that this new conceptualization will be more or less useful or accurate. So far, integrating the McKinsey & Company report with Dr. Pucella’s work, I’ve come up with this. I apologize for it being a bit messy:

What’s going on here is that aspirations are informing strategy, which is informing advocacy (spreading awareness) and programs (working with people directly). Both advocacy and programs are being assessed, and that information is used to adapt the strategy.

Culture is informing the aspirations and being changed by the aspirations, as well as changing the people working for the organization (human resources). Finances are taken into account in the strategy and used to recruit and retain people. Technology also informs the strategy as well as improves assessment. Overall, this is my current integrated and generalized picture of how non-profits flow and shows all the distinct areas in which non-profits can improve.

Next up will improve this conceptualization by looking at another report, this time from the Urban Institute.